I am just a little confused on some issues with regards to property. Basically this is my understanding
1231 Property is Depreciable personal use property or real property
1245 Property is Depreciable personal use property used in a business
1250 Property is Depreciable real property used in a business
Could someone please elaborate on these areas. Also the definition of a capital asset are securities held for investment and no inventory ect. Could someone please clarify. Thanks for any feedback it is much appreciated,
Here is my understanding;
1231 Real or bus property held more than 1 year (not inventory); Gain is long term capital but loss is an ordinary loss
1245 Machinery and Equipment;Depreciation recapture is ordinary gain, but remainer is 1231 (see above, LT capital gain)
Depreciation Mid-quarter or 1/2 Year
1250 real estate in business; Depreciation in excess of straight line is recaptured. Depreciation 27.5 year residential or 39 year non-residential – mid month convention.
If any of these are held less than a year then its ordinary gain/loss.
So I understand the purpose of depreciation recapture but I'm a little confused regarding the difference between 1245 and 1250. I understand how to find the amount of ordinary income/long term capital gain but I don't understand why 1250 only recognizes the additional amount of depreciation as ordinary income and not the full depreciation amount as with 1245. Can anyone shed any light?
I think the easiest answer to your question is “because the IRS says so.” Sometimes, its just not a good idea to ask why, and this may be one of them.
Another answer would be, since the 1245 assests and 1250 assets are different classes of assets, they are taxed differently.
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